Stimulus rebate / tax refund - What happens to it in bankruptcy?

[justplaintired]

My guess would be arrearages. This is your DH first priority to pay. So I am like you and would let them take it for that. It will benefit you more in the long run and will pay down those arrearages quicker.

[Teddy]

Hmm...I'm filing as injured spouse to get my IN tax return (only $100) vs it going to my husband's support arrearage. I wonder if I should just let it go to the arrearage? I'd rather have it help him/us on that. I wonder if it would go to the Trustee or arrearage first? That's a good question!

[justplaintired]

I wonder if this is C7 or C13? I spent my tax refund on our attorney with a whopping $50 left over. We owe the state so, there is nothing there for anyone to take, unless ofcourse they want to pay the $70 I owe them right now.

[fabala]

My attorney told me yesterday (April 11th) that she thinks the Trustee in my area will take the stimulus payment since it is considered 'disposable income'. This Trustee also takes all of your income tax refund. I'm Ch13.

[justplaintired]

So I wondered since the date of these checks is getting closer any new news from anyone in regards to what lawyers are saying? I am still curious if this money will be hands off, my guess is no, but a girl can dream can't she?? Anyway, since the last post was the 8th, i just wondered if anyone had a new news??? I understand taking it for taxes, I read that awhile back ago on the IRS site, but what if you don't owe taxes, which we don't.

Thanks!

[pa308]

Not to be stupid, but it seems most of these questions are in regards to the means test. Any idea how it would affect schedule I?

[MajorMike]

Our trustee wont take it but the IRS will keep it. Fine by me....less I have to pay them later.

[danaf]

Guess what? - This rebate is going to hit the same checking account that your tax refund did and there is no way to change that. No doubt that was done on purpose. You realize all the returned rebates they will get with as much as people are moving around ect?

So in my case - it is going to hit the credit union checking account where I have my car loan. And while I'm current on my loan and intend to keep it that way - I just don't trust credit unions. (I just recently went out and opened up a new checking account elsewhere).

So I guess I'm forced to continue the waiting game until the rebate hits.

[diviaruba]

Thanks again for the info. One last question....

Given that we have no equity we should able to exempt all of our tax refund (using fed Exemptions). If that is the case and we still have enough room to exempt the stimulus payment as well, could it still be considered income?

You can exempt it ahead of time, if you can anticipate what it will be, or you can exempt it after it hits your account as an ordinary bank deposit.

Until some greater clarity is reached, particularly at your district level (it's Mass., right?), there's no telling how it will be viewed from an income standpoint. I would say, as I have all along, that it has the net effect of reducing your overall tax liability ("taxes incurred"), thereby increasing your disposable income, and has no effect on gross income (the top line income).

[seanf12]

Thanks again for the info. One last question....

Given that we have no equity we should able to exempt all of our tax refund (using fed Exemptions). If that is the case and we still have enough room to exempt the stimulus payment as well, could it still be considered income?

[diviaruba]

Good point, but how does one know what taxes are actually paid, since technically this is a refund\rebate on taxes that are paid for all of 2008? How would you know what your taxes incurred are going to be for 2008 when it is only April. It would almost imply you need to have your tax return completed mid-year in order. That part has always confused me a bit

Using the IRS Withholding Calculator http://www.irs.gov/individuals/page/0,,id=14806,00.html will give you a pretty good idea of what your tax liability is likely to be, especially for salaried workers. Most of the large deductions that taxpayers itemize, such as mortgage interest, income and property taxes, etc. (includable in the calculator) are fairly ascertainable at any point during the year, and the tax rates and brackets are announced well before the new tax year begins.

Bankruptcy Analysts in the US Trustee's office have access to tax tools with greater sophistication than this simple calculator (which is pretty robust to begin with), and run the numbers to look for patterns of over-withholding - one of the reasons they want 2 years of tax returns, including all schedules.

Put another way, the debtor who sets W-2 exemptions at or below the number allowed for their family size, either in an effort at "forced savings" or just from plain inertia, will almost always get a refund if using the standard deduction or higher values if itemizing. The tables are set up that way to minimize under-withholding and the attendant collection problems come April 15, as well as to (cynically speaking) give the government the use of those funds throughout the fiscal year.

[wellspring]

So.... Do you think the Trustees will take the stimulus check? Has anyone recieved conformation from their lawyer or Trustee?

I received a letter from my Trustee which stated:
NOTE: There is the possibility of a rebate that will be passed by Congress for the 2007 tax year. If this is passed these funds will be property of the estate and will need to be forwarded to the Trustee. They are not the debtors to keep.

My lawyer said to wait and see, he's peeved about this because he doesn't think he should be allowed to keep anything past the filing date of BK. It's not an inheritance, nor was it expected. He's had several other calls from people getting the same letters from this particular trustee who is a real jerk. If he wants the stupid thing, let him take it. He will then get a total of 900.00 dollars to distribute to creditors totaling over $60,000.00. Is it really worth it???? But what I'm wondering is if he's going to follow the formula that he used when taking my income tax return? like take the rebate, divide by 12x6 months, then so much for how many days til filing??? Or just take the whole thing?? I guess I'll just have to wait and see what happens. Either way, I'm better off with no more debt.

[seanf12]

Good point, but how does one know what taxes are actually paid, since technically this is a refund\rebate on taxes that are paid for all of 2008? How would you know what your taxes incurred are going to be for 2008 when it is only April. It would almost imply you need to have your tax return completed mid-year in order. That part has always confused me a bit

[diviaruba]

Just to confuse the issue a bit more, I posted a couple of questions to allexperts.com and lawguru.com, which are supposedly answered by lawyers. Both have said that they do not believe it will be income, since technically speaking the rebate is actually a new tax credit that will be taking affect next year (we are just receiving it a year early).

So it appears this is very much up in the air. I am guessing the UST office will chime in eventually with an official stance. I did find this link though that lists item #7 as not including tax refunds (Other Sources Of Income)

http://www.usdoj.gov/ust/eo/bapcpa/d...T_Policies.pdf

http://www.orb.uscourts.gov/orb/newopinions.nsf/7319DC58D69349E9882572FF006CEC20/$file/mullen%20opinion.pdf?openelement

[seanf12]

Thanks Phoeynx, and good luck on your filing!

Unfortunately I think I am one of those borderline cases. If in fact the stimulus is considered income (I confirmed we are receiving $2100, family of 5), then in all likelihood it will push us over the edge to a 13. Now just to confirm, if it is income, they would take the $2100 and divide by 6 and use that figure on the means test, correct? Or do they annualize it over 12 months and use that number instead?

Either way, I guess there really isn't much we can do. I think I am slowly but surely accepting the fact that while a Chapter 7 is preferable, a Chapter 13 may not be as bad I think it is and in fact will certainly give us a better future.